Tag Archives: AAA

Re: Fannie & Freddie

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(an email exchange)

>
>   On Mon, Apr 21, 2008 at 9:55 AM, Russell wrote:
>
>   Fannie and Freddie now back 82% of all mortgages in the U.S.,
>   up from only 46% in the second quarter of 2007. If they need
>   a bailout – could be a trillion dollars –

Funds are already advanced to the homeowners which supports demand.

A ‘bailout’ would only be an accounting entry between the government’s account and the agency’s account – no effect on aggregate demand.

>   the USA may lose its AAA credit rating.

Like Japan did. Just another sign of incompetance by the ratings agency if it happens.

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Monoline proposal

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Fed by itself or working with AAA counterparty offers to sell supplemental bond insurance to investors. (AFLAC concept)

Maybe charge a point and insure up to a price of maybe 99, or whatever combo works.

Worst case the current insurers are downgraded to AA, so they should still be able to cover losses, so risk is minimal to the new insurer, and fees will likely be profits.

Only investors who care would buy it.

Bonds would remain AAA rated.

The key is the current insurer’s capital is still in first loss position, and the current insurance is probably still money good, or they’d be talking about a downgrade way below AA.

And not all bond holders care about AAA vs AA. Only those who care buy the supplemental insurance.

♥

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